CHAIRMAN'S LETTER
................................................................................
To Our Fellow Shareholders: May 1997
The net asset value (NAV) of a common share of the Fund declined from
$11.27 on December 31, 1996 to $10.82 on March 31, 1997, after deducting the
distribution of 30 cents declared during the quarter. The market price of a
share of the Fund traded in a range from $9.125 to $10.875 before closing the
quarter at $10.00. The ending price represented a discount to NAV of 7.6 percent
compared with a discount to NAV of 17.9 percent on December 31, 1996.
Narrowing the discount was the primary objective of the new quarterly
distribution policy announced in February, and we are pleased with the results
so far. Key investment results and comparisons are noted below.
As the table shows, the Fund's net asset value declined 1.3 percent,
which compares with a negative 1.3 percent for the Lipper Growth Mutual Fund
Average (the Fund's primary benchmark) and a negative 5.4 percent for the NASDAQ
Composite Index. For the last 12 months, the Fund's net asset value (with
dividends reinvested) was up 11.0 percent compared with 11.5 percent for the
Lipper Average and 10.9 percent for NASDAQ.
================================================================================
First Quarter Latest 12 Months
- -------------------------------------------------------------------------------
LIBERTY ALL-STAR GROWTH FUND, INC.
Shares Valued at Net Asset Value (1.3)% 10.3%
Shares Valued at Net Asset Value
With Dividends Reinvested (1.3)% 11.0%
Shares Valued at Market Price
With Dividends Reinvested 11.1% 21.4%
Fund's Closing Price Range $10.75 to $9.125 $10.75 to $8.50
Fund's Discount Range 18.8% to 7.6% 19.9% to 7.6%
Lipper Growth Mutual Fund Average (1.3)% 11.5%
NASDAQ Composite Index (5.4)% 10.9%
S&P 500 Stock Index 2.7% 19.8%
Dow Jones Industrial Average 2.6% 20.3%
Figures shown for the Fund and the Lipper Growth Mutual Fund Average are total
returns, which include income, after deduction of fees and other operating
expenses. Figures shown for the unmanaged S&P 500 and Dow Jones indices are
total returns including income. Figures for the unmanaged NASDAQ Index are total
returns excluding income.
================================================================================
The stock market, as measured by the S&P 500, continued its advance for
the ninth quarter in a row, a string that has not been matched since the market
increased 11 consecutive quarters between the third quarter of 1962 and the
first quarter of 1965. The NASDAQ Index broke its string of eight consecutive
quarterly advances when it declined during the first quarter.
But the market was particularly weak in the latter part of the quarter.
A contributing factor was the widely anticipated Federal Reserve Board's boost
in short-term interest rates, which came to pass in late March. The NASDAQ
Index, after peaking at 1388.06 on January 22, dropped 12 percent to close the
quarter at 1221.70 while the S&P 500, after peaking at 816 in mid-February,
dropped 7.2 percent to close the quarter at 757. Richard Christensen's
President's letter which follows, provides additional perspective.
In February, Liberty Asset Management Company, the Fund Manager,
recommended, and the Board of Directors approved, the hiring of a new Portfolio
Manager, William Blair & Company, L.L.C., to replace Provident Investment
Counsel, Inc. effective March 1, 1997. William Blair is the subject of the
manager interview beginning on page 6. John Jostrand, Portfolio Manager,
discusses the firm's investment philosophy and decision making process as well
as particular stocks that are representative of its style of investing.
Sincerely,
/s/ Harold W. Cogger
Harold W. Cogger
Chairman of the Board of Directors
Liberty All-Star Growth Fund, Inc.
Executive Vice President
Liberty Financial Companies, Inc.
1
<PAGE>
PRESIDENT'S LETTER
................................................................................
To Our Fellow Shareholders: May 1997
Just as last summer's market correction, the recent correction was
noteworthy mainly in the quickness of the rebound to new highs. For example, the
S&P 500 Stock Index peaked at 816.29 on February 18, dropped almost 79 points to
a low of 737.65 on April 11, then rose to a new high of 830.24 on May 5. So, the
depth of the correction was 9.6 percent over a period of less than two months,
and within less than four weeks the market was back to new highs.
But, the NASDAQ Composite Index is actually a better index than the S&P
500 to compare with Liberty All-Star Growth Fund. The Fund's portfolio contains
about two NASDAQ stocks for every one S&P 500 stock and the average
capitalization of the Fund's portfolio is $13 billion compared with roughly $15
billion for the NASDAQ and $41 billion for the S&P 500. The NASDAQ Index peaked
at 1388.06 on January 22, dropped 187 points to a low of 1201 on April 2, then
rose to 1339.24 on May 5. So the depth of the NASDAQ correction was 13.5 percent
over a period of about two months, and it has not yet returned to its previous
high.
As was noted in our recent annual report, the investment returns of
shares of large companies were significantly greater than those of smaller
companies during 1996. That situation continued into the first quarter, as the
50 largest capitalization stocks in the S&P 500 were up 4 percent, while the
bottom 450 returned only 1.7 percent, and the NASDAQ Index, which contains over
5,000 stocks including much smaller companies than the S&P 500, declined 5.4
percent.
Both the S&P 500 and the NASDAQ are weighted by market capitalization
rather than equally among all their respective stocks. The largest companies in
the indices have market capitalizations that are hundreds of times larger than
those of the smallest companies, so the returns of the largest companies
disproportionately influence the indices. Investment managers rarely own the
largest stocks in weights that are equal to their representation in either
index. In fact, managers are more likely to balance their portfolio holdings
across an even broader capitalization spectrum.
The superior performance of a narrow group of large capitalization
stocks, coupled with an underweighting of those issues by most managers, were
the major factors contributing to the fact that many funds underperformed either
or both indices in 1996 and so far in 1997. For example, the return on the S&P
500 for the first quarter of 1997 exceeded those of 87 percent of all mutual
funds according to Lipper Analytical Services, Inc., and only one of the
domestic general equity closed-end funds beat the S&P 500 during the first
quarter.
Although it is difficult to forecast how long the outperformance of the
very largest stocks will continue, it is not likely to go on indefinitely. When
the relative performance of the other stocks improves, the Fund should benefit.
More than 60 percent of the Fund's individual shareholders elected to
take newly issued shares, valued at market price, in the recent first quarter
distribution of $.30 per share, which was entirely realized capital gains. By
taking newly issued shares, rather than cash, shareholders are able to reinvest
their capital gains in the Fund so that these gains can build additional value
through compounding.
Sincerely,
/s/ Richard R. Christensen
Richard R. Christensen
President and Chief Executive Officer
Liberty All-Star Growth Fund, Inc. and
Liberty Asset Management Company
2
<PAGE>
PORTFOLIO CHARACTERISTICS
................................................................................
MANAGERS' DIFFERING INVESTMENT STYLES ARE REFLECTED IN PORTFOLIO
CHARACTERISTICS
The Portfolio Characteristics table on this page is a regular feature of the
Fund's shareholder reports. It serves as a useful tool for understanding the
value of a multi-managed portfolio. The characteristics are different for each
of the Fund's three Portfolio Managers. These differences are a reflection of
the fact that each pursues a different Investment Style. The shaded column
highlights the characteristics of the Fund as a whole, while the final column
shows portfolio characteristics for the entire S&P 500 Stock Index.
THE INVESTMENT STYLES PRACTICED BY THE FUND'S THREE PORTFOLIO MANAGERS ARE:
MISSISSIPPI VALLEY ADVISORS INC. (MVA)
Small capitalization growth companies that sell at a reasonable current price
relative to anticipated future earnings.
WILLIAM BLAIR & COMPANY
Companies with high profitability and enduring growth from a broad range of
market capitalizations.
OPPENHEIMER CAPITAL
Contrarian holdings being overlooked and undervalued by investors.
PORTFOLIO CHARACTERISTICS AS
OF MARCH 31, 1997
(UNAUDITED)
MARKET CAPITALIZATION SPECTRUM
SMALL ======== LARGE
<TABLE>
<CAPTION>
William Oppen- Total S&P
MVA Blair heimer Fund 500 Index
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of Holdings 79 46 31 152 500
- -------------------------------------------------------------------------------------------
Weighted Average Market
Capitalization (billions) $ 1.4 $ 15.2 $ 23.8 $ 12.8 $ 40.8
- -------------------------------------------------------------------------------------------
Percent of Holdings in S&P 500 7.6% 47.8% 64.5% 29.6% --
- -------------------------------------------------------------------------------------------
Dividend Yield 0.8% 0.6% 1.4% 0.9% 2.0%
- -------------------------------------------------------------------------------------------
Average Price/Earnings Ratio 18.7x 24.7x 15.0x 18.8x 18.4x
- -------------------------------------------------------------------------------------------
Average Price/Book Value Ratio 3.3x 6.2x 4.0x 4.4x 4.6x
- -------------------------------------------------------------------------------------------
Average Five-Year Earnings
Per Share Growth 22.3% 22.1% 19.7% 21.4% 14.1%
</TABLE>
3
<PAGE>
TOP 50 HOLDINGS
................................................................................
<TABLE>
<CAPTION>
RANK RANK
AS OF AS OF VALUE PERCENT OF
3/31/97 12/31/96 SECURITY NAME ($000) NET ASSETS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 2 Federal Home Loan Mortgage Corp. $2,61 2.0
2 6 Citicorp 2,615 1.7
3 3 Intel Corp. 1,948 1.5
4 10 ACE, Ltd. 1,920 1.5
5 9 Travelers Group, Inc. 1,915 1.5
6 7 Monsanto Co. 1,913 1.5
7 8 McDonnell Douglas Corp. 1,830 1.4
8 11 MBNA Corp. 1,756 1.3
9 14 Arrow Electronics, Inc. 1,691 1.3
10 18 EXEL Ltd. 1,690 1.3
11 23 Transamerica Corp. 1,611 1.2
12 26 Sprint Corp. 1,593 1.2
13 13 First Data Corp. 1,571 1.2
14 NEW State Street Boston Corp. 1,540 1.2
15 12 AFLAC, Inc. 1,500 1.1
16 17 Morgan Stanley Group, Inc. 1,469 1.1
17 1 Microsoft Corp. 1,467 1.1
18 21 Nokia Corp. ADR 1,456 1.1
19 4 Federal National Mortgage Assoc. 1,445 1.1
20 29 Catepillar, Inc. 1,445 1.1
21 NEW Molex, Inc. 1,439 1.1
22 28 Medtronic, Inc. 1,432 1.1
23 30 Wells Fargo & Co. 1,421 1.1
24 NEW Household International, Inc. 1,412 1.1
25 NEW Cognizant Corp. 1,389 1.1
26 16 Countrywide Credit Industries, Inc. 1,361 1.0
27 24 AMR Corp. 1,320 1.0
28 15 LucasVarity PLC ADR 1,281 1.0
29 31 Progressive Corp. 1,278 1.0
30 5 Pfizer, Inc. 1,262 1.0
31 27 Lockheed Martin Corp. 1,260 1.0
32 55 HEALTHSOUTH Corp. 1,258 1.0
33 41 R. R. Donnelley & Sons Co. 1,221 0.9
34 33 Freeport-McMoRan Copper & Gold, Inc., Class A 1,215 0.9
35 35 General Electric Co. 1,191 0.9
36 42 American International Group, Inc. 1,174 0.9
37 43 Champion International Corp. 1,138 0.9
38 36 May Department Stores Co. 1,138 0.9
39 48 Dole Foods, Inc. 1,133 0.9
40 NEW Shared Medical Systems Corp. 1,125 0.9
41 NEW Illinois Tool Works, Inc. 1,069 0.8
42 NEW Xilinix, Inc. 1,063 0.8
43 44 Hercules, Inc. 1,056 0.8
44 38 PMI Group, Inc. 1,053 0.8
45 32 Triton Energy Corp. 1,046 0.8
46 40 Fisher Scientific International 1,037 0.8
47 46 Hubbell Inc., Class B 1,014 0.8
48 107 Elan Corp. ADR 1,010 0.8
49 NEW Reuters Holdings PLC ADR 1,001 0.8
50 115 Interim Services, Inc. 995 0.8
</TABLE>
4
<PAGE>
MAJOR STOCK CHANGES IN THE FIRST QUARTER
................................................................................
The following are the major ($300,000 or more) stock changes -- both additions
and reductions -- that were made in the Fund's portfolio during the first
quarter of 1997, not including the changes made in connection with the
substitution of William Blair & Company, L.L.C. for Provident Investment
Counsel, Inc. as Portfolio Manager effective March 1, 1997.
<TABLE>
<CAPTION>
SHARES
==========================================
HELD AS
SECURITY NAME ADDITIONS REDUCTIONS OF 3/31/97
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Albany International 25,000 25,000
Blyth Industries, Inc. 14,300 14,300
Caraustar Industries, Inc. 18,000 18,000
CCB Financial Corp. 6,300 6,300
Consolidated Papers, Inc. 9,000 9,000
Credit Acceptance Corp. 52,900 52,900
Grand Metropolitan PLC ADR 25,000 25,000
International Specialty Products, Inc. 30,000 30,000
Leggett & Platt, Inc. 14,000 14,000
Minerals Technologies, Inc. 17,190 17,190
National Data Corp. 23,500 23,500
Regal Cinemas, Inc. 16,400 16,400
RPM, Inc. 34,000 34,000
SystemSoft Corp. 59,500 59,500
The Sports Authority, Inc. 19,500 19,500
VeriFone, Inc. 20,000 20,000
Advanta Corp., Class B (19,000) 0
Department 56, Inc. (25,000) 0
Finova Group, Inc. (5,900) 6,100
Intel Corp. (4,000) 14,000
Michaels Stores, Inc. (42,000) 0
Murphy Oil Corp. (9,000) 0
Norand (22,400) 0
Oakley, Inc. (47,000) 0
Quantum Corp. (10,000) 14,800
Signet Banking Corp. (25,000) 0
Sungard Data Systems, Inc. (8,200) 15,000
Talbots, Inc. (17,000) 0
Union Planters Corp. (22,500) 0
</TABLE>
5
<PAGE>
MANAGER INTERVIEW
................................................................................
[PHOTO OF JOHN F. JOSTRAND
JOHN F. JOSTRAND] William Blair & Company
William Blair & Company Loves High Quality, Sustainable Growth And Research,
Research, Research
Chicago-based William Blair & Company is the newest of Liberty All-Star Growth
Fund's three Portfolio Managers. The firm places a high degree of emphasis on
disciplined, fundamental research to identify quality growth companies with the
ability to sustain their growth over long time periods. The firm's focus on
stability and a long-term horizon is reflected internally by a remarkable degree
of continuity among the investment and management teams. We recently had the
opportunity to talk with John F. Jostrand, Portfolio Manager for William Blair.
The Fund Manager, Liberty Asset Management Company (LAMCO), serves as the
moderator for the interview.
- --------------------------------------------------------------------------------
The views expressed in this interview represent the manager's views at the time
of the discussion and are subject to change.
- --------------------------------------------------------------------------------
LAMCO: As this is your first interview for Liberty All-Star Growth Fund, perhaps
we could start with some background with regard to the firm.
JOSTRAND: William Blair was founded in 1935 and to this day we remain 100
percent employee owned, and we find it is a very important attribute. Throughout
the firm, we have a single-minded focus on one thing -- what we call quality
growth companies. We believe the true core of our firm is the group of analysts
who lead our research effort. Here at William Blair, research is a real career
path. Management puts a lot of time and effort into making sure that a person
who comes to work for William Blair as a research analyst has a career as an
analyst, and we take a lot of pride in the fact that there has been very little
turnover among that core of analytical talent.
LAMCO: Of the analysts, how many are equity analysts?
JOSTRAND: They're all equity analysts. That's a good point . . . when I say we
focus on quality growth, our research people are totally dedicated to uncovering
younger and mid-size companies that we think have an open-ended opportunity to
grow for a long, long time and in a very sustainable fashion.
LAMCO: Since you've already touched on it, perhaps you could expand on William
Blair's investment philosophy and style.
JOSTRAND: Our philosophy is built on companies that offer good prospects for
sustainable growth. It's important that we're looking for companies that are
built to last. We want companies that have strong internal, or "organic,"
growth. Just as importantly, we want very high quality companies. We want
industry leaders -- that is to say, not necessarily the largest, but whatever
the important competitive differentiator is in an industry, we want the company
that's got the leading angle of attack. We want companies that are highly
profitable, and we want to get to know the management because we need to buy
into its strategy and its ability to execute that strategy. That's our
definition of quality. Now, when I say we want companies that are built to last,
I mean that we want companies that will produce results that are as consistent
as humanly possible. We want steady, predictable companies and we look for
companies with business models that give us confidence that the company can
produce over a long period of time.
Given our emphasis on sustainable performance, we tend to be long-term
investors. We have some companies in which we've been invested for well over a
decade. In terms of average holding period, I would say it's three to four
years. We're generally an all-cap manager, and by that I mean we invest in
companies across the market capitalization spectrum. We incorporate small and
mid-cap companies due to their supe-
6
<PAGE>
MANAGER INTERVIEW
................................................................................
rior long-term return potential. We will also invest portions of the portfolios
in what we call recognized growth companies and we'll also have a foundation of
companies that have been around the track through more than a couple of market
cycles -- what we call classic growth stocks.
LAMCO: How do you go about finding those companies?
JOSTRAND: The most important part of the process is getting to know managements
and their business model, and we do that by hands-on research. We feel we take a
disciplined, fundamental, bottom-up, industry-by-industry, company-by-company,
approach to the market. The analysts whom I mentioned at the outset are a key
part of that process. They're recognized experts and they're given a wide degree
of latitude in how they approach their work.
LAMCO: How do the analysts identify their buy candidates?
JOSTRAND: It's a qualitative process more than a quantitative one. Very often,
interesting companies turn up in the course of analysts doing due diligence on
companies they are already familiar with. They find out who a company's best
customer is or the company that is the best source of supply. This digging
produces interesting ideas for further research.
- --------------------------------------------------------------------------------
"Competitiveness is a company's ability to keep its elbows up and protect its
franchises, and that's a difficult task. We really like managements that are
able to do that and define a niche that is difficult to get into."
- --------------------------------------------------------------------------------
LAMCO: Can you identify a couple of key criteria that you demand of an
investment candidate?
JOSTRAND: Number one is the size of the opportunity. We want a company to be
able to create many years of above-average growth for itself. So, the number one
criteria is the ability of a company to create a long-term opportunity for
itself. That's a little intangible, and that's why it requires in-depth
understanding of management. Once we get comfortable that management is proven
and we buy into its strategy, we want to assess the competitive dimension. To do
that, we may do surveys to uncover the opinions of various suppliers. If it's in
retail we'll do pricing surveys, for example. And if it's some other distinctive
capability, we'll survey customers. Another criteria, predictable earnings, is
fairly straightforward. As we look at a company's record, we want to see good
growth rates from year-to-year, stability of margins and relatively high margins
in terms of return on sales or capital, and predictable earnings. We also want
to see conservative accounting practices, which gives us the confidence that
down the road there won't be a large write-off that's not anticipated.
LAMCO: Do you have guidelines on such factors as price/earnings or price-to-book
ratios?
JOSTRAND: To us, valuation is something we pay attention to but it's less
important. Primarily, we feel that solid long-term growth companies are
relatively rare, so we're willing to pay a fair price. If we do have a criteria,
I would say it's price/earnings ratio to the growth rate. We will shy away from
companies where the growth rate is well below the P/E ratio, particularly where
we don't feel that the business model is as stable or consistent as we would
like. Still, a lot of judgment goes into whether a 1-to-1 ratio is right, or
1.5-to-1, or .75-to-1 because of our assessment of the stability of the business
model and the consistency of earnings and margins.
LAMCO: You've mentioned on a couple of occasions that your ideal buy candidates
are relatively rare.
JOSTRAND: That's right. The world is as competitive or more competitive today
than it has been in a long, long time. Low interest rates have allowed the
supply/demand and price mechanisms to work much more freely, global
competitiveness is an obvious phenomenon, ideas cross borders with fluidity, and
all that breeds a lot of competition. Competitiveness is a company's ability to
keep its elbows up and protect its franchises, and that's a difficult task. We
really like managements that are able to do that and define a niche that is
difficult to get into. Or, even more importantly, provide a certain price/value
equation to their customers that make it difficult for them to go to another
vendor. In fact, another layer down in our criteria for investment is a
company's customer retention rate. We like the companies that score very highly
on that measure. An example would be a company that does business this year with
90 percent of the
7
<PAGE>
MANAGER INTERVIEW
................................................................................
customers they did business with last year. What you find in a lot of growth
industries is that there are companies that are growing very rapidly, but they
don't necessarily know who their customers are now, let alone whether they did
business with them last year. To carry that one level further, we like to own
companies that sell a product or service where the customer comes back
frequently.
LAMCO: Tell us about your sell discipline.
JOSTRAND: The two most important considerations are valuation and fundamentals.
As I said, we're willing to pay a fair price, but by far the most important
factor is fundamentals. Are they intact? Is management's strategy still the
same? In a sense, we try and think of ourselves as active board members.
Obviously, we're not on the boards of our companies, but we want that level of
understanding in our portfolios. If a management begins to wander from its path,
that's a yellow flag for us. An example might be a company that, for years, has
been growing very solidly, perhaps by growing its sales force, and all of a
sudden it embarks on an aggressive acquisition campaign. That would be a yellow
flag.
- --------------------------------------------------------------------------------
"we like to own companies that sell a product or service where the customer
comes back frequently."
- --------------------------------------------------------------------------------
LAMCO: How would you sum up the most distinctive characteristic of William Blair
& Company?
JOSTRAND: I would say the most important thing is the continuity of the
personnel, the continuity and expertise at William Blair. We've had a remarkable
absence of turnover among our senior people. We haven't had a portfolio manager
leave the firm for any reason other than retirement in the last 10 years. When
we tell investors that our philosophy has been unchanged for many years, it's
believable because the same people are here.
LAMCO: Let's turn to the All-Star Growth Fund Portfolio. Can you give us some
examples of stocks that illustrate your philosophy and style of investing?
JOSTRAND: Two holdings are actually in the same business, Paychex and Automatic
Data Processing, or ADP. Both are primarily payroll processors. This is a very
fragmented industry -- ADP has 300,000 customers and Paychex has about 250,000.
What these companies do, in a very cost effective, reliable way, is provide pay
checks to their clients. Over the years, more and more companies have outsourced
this function and these two companies are terrific examples of high customer
retention rates. ADP is roughly $4 billion in sales and it serves the large
employer segment. Paychex is about $750 million in sales and is growing rapidly
in the small employer segment. Both have produced remarkably consistent, steady
margins over time and have grown in a very steady fashion as well. The thing
that's allowed them to grow, apart from new clients year after year, is that the
processing is becoming increasingly complex. As a result, both companies have
been able to layer on enhanced services. In the case of ADP, that might be new
initiatives in the health benefits processing or administration area, and in the
case of Paychex it might be electronic funds transfer and electronic tax-paying
services. These may be the quintessential William Blair growth stocks.
Another example is Molex, which is a very different type of company and
one that we have owned for well over a decade. This company has a fine grained,
repetitive nature to it. Molex has sales of about $1.5 billion derived from the
production of connectors, which are a type of passive electronic device. It's
our way of playing the electronics technology market. Molex has produced a
remarkable record of growth over the years, and pre-tax margins have been very
stable in the 15 to 16 percent range over the last several years. But the
important thing here is that although Molex provides something that many other
companies produce, it does it with a cleverness and a high degree of service
that has allowed it to gain share in a market that's growing rather nicely
itself. They were aggressively into the Far East at a time when manufacturing in
the Far East had a connotation of low quality. And, they followed their primary
customers overseas and produced a very high quality product for them. At the
same time, they've been successful in the U.S. as represented by a very large
contract from General Motors. Molex also runs a very tight ship, a very
profitable ship, that allows it to generate sufficient profitability to reinvest
in new product development and, thus, exceed their customers' expectations. Its
formula has worked for well over 25 years.
8
<PAGE>
MANAGER INTERVIEW
................................................................................
LAMCO: How about a final example?
JOSTRAND: That would be Fastenal, which is an industrial distributor of
fasteners, originally, but with an expanding line of tools. The company has
grown largely through geographic expansion radiating from its base in Winona,
Minnesota to the point of a nearly national presence. But a key skill of the
company is the plain old-fashioned sales training and management. Growth of the
sales-force in existing locations and offering a broader array of products is an
important element of future growth. The company's key advantage is superior
service that stems from its convenient small town locations and professional
staff. The company should continue its impressive string of many years of steady
above average growth - 35 percent on average in sales - with sales of $400
million this year. Fastenal has produced steady 17-18 percent pretax margins and
a clearly superior 30 percent return on shareholders equity. We believe Fastenal
will be able to grow for many more years.
- --------------------------------------------------------------------------------
"As long as the Federal Reserve maintains a steady, watchful eye on various
measures of inflation and doesn't let it get out of hand the way it did in the
1970s, we think we'll have a very fertile investment environment."
- --------------------------------------------------------------------------------
LAMCO: It would be difficult to end any conversation today without a reference
to the stock market. What does William Blair think?
JOSTRAND: I'll put a real disclaimer on this since we're a bottoms-up investor.
The thing that has put a pinch on returns lately has been rising interest rates.
Now, over the last 15 years, rates haven't been all that high, but nonetheless
they are rising today and that's not good for financial returns. But, as we do
with all our holdings, we take the long-term view of things and the most
important thing to us is not so much the business cycles or ups and downs of
interest rates, but the absence of inflation. As long as the Federal Reserve
maintains a steady, watchful eye on various measures of inflation and doesn't
let it get out of hand the way it did in the 1970s, we think we'll have a very
fertile investment environment. Nineteen ninety-seven may or may not be the best
year, but as long as inflation remains benign, we feel confident.
9
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (UNAUDITED)
................................................................................
<TABLE>
<CAPTION>
COMMON STOCKS (98.2%) SHARES MARKET VALUE
<S> <C> <C>
AEROSPACE (2.4%)
Lockheed Martin Corp. 15,000 $ 1,260,000
McDonnell Douglas Corp. 30,000 1,830,000
-----------
3,090,000
-----------
AUTO, TIRES & ACCESSORIES (1.3%)
Discount Auto Parts, Inc. (a) 24,000 384,000
LucasVarity PLC ADR (a) 42,000 1,281,000
-----------
1,665,000
-----------
BANKS (6.1%)
CCB Financial Corp. 6,300 404,775
Charter One Financial, Inc. 14,200 623,025
Citicorp 20,000 2,165,000
Crestar Financial Corp. 27,000 934,875
First Financial Corp. 6,250 163,281
Standard Federal Bancorporation 13,800 800,400
State Street Boston Corp. 22,200 1,540,125
Wells Fargo & Co. 5,000 1,420,625
-----------
8,052,106
-----------
BROADCASTING & CABLE (0.3%)
Evergreen Media Corp., Class A (a) 12,500 364,844
-----------
BUSINESS SERVICES (7.7%)
Acxiom Corp. (a) 30,400 437,000
American Management Systems (a) 41,900 921,800
Cognizant Corp. (a) 47,700 1,389,263
Concord EFS, Inc. (a) 27,700 519,375
First Data Corp. 46,370 1,570,784
National Data Corp. 23,500 831,313
Paychex, Inc. 10,000 411,250
Reuters Holdings PLC ADR 17,200 1,000,825
Shared Medical Systems 24,200 1,125,300
Sungard Data Systems, Inc. (a) 15,000 652,500
SystemSoft Corp. (a) 59,500 595,000
VeriFone, Inc. (a) 20,000 655,000
-----------
10,109,410
-----------
CHEMICALS (5.5%)
Cytec Industries, Inc. (a) 11,200 424,200
Hanna (M.A.) Co. 46,000 977,500
Hercules, Inc. 25,000 1,056,250
International Specialty Products, Inc. 30,000 375,000
Minerals Technologies, Inc. 17,190 571,568
Monsanto Co. 50,000 1,912,500
RPM, Inc. 34,000 565,250
-----------
5,882,268
-----------
COMPUTER & BUSINESS EQUIPMENT (5.5%)
Active Voice Corp. (a) 20,000 205,000
Black Box Corp. (a) 27,100 731,700
Ikon Office Solutions, Inc. (a) 19,700 659,950
<CAPTION>
SHARES MARKET VALUE
COMPUTER & BUSINESS EQUIPMENT (CONT.)
<S> <C> <C>
Intel Corp. 14,000 $ 1,947,750
Komag, Inc. (a) 15,132 459,635
Microsoft Corp. (a) 16,000 1,467,000
Quantum Corp. (a) 14,800 571,650
The Peak Technologies Group (a) 36,000 378,000
Zebra Technologies Corp., Class A (a) 37,803 869,469
-----------
7,290,154
-----------
CONSTRUCTION (0.5%)
J. Ray McDermott, S.A. (a) 26,000 630,500
-----------
CONSUMER PRODUCTS (1.2%)
Blyth Industries, Inc. (a) 14,300 516,577
Gucci Group NV ADR 8,000 577,000
Leggett & Platt, Inc. 14,000 455,000
-----------
1,548,577
-----------
DIVERSIFIED (1.7%)
Ball Corp. 21,800 577,700
General Electric Co. 12,000 1,191,000
Lydall, Inc. (a) 23,000 465,750
-----------
2,234,450
-----------
DRUGS & HEALTH CARE (13.7%)
Allergan, Inc. 26,700 777,638
Amgen, Inc. (a) 8,000 447,000
Apria Healthcare Group, Inc. (a) 25,600 464,000
Bard (C.R.) Inc. 20,000 570,000
Baxter International, Inc. 12,462 537,424
Beverly Enterprises 50,000 712,500
Boston Scientific Corp. (a) 13,000 802,750
Cardinal Health, Inc. 15,000 815,625
Columbia/HCA Healthcare Corp. 16,500 554,813
Dentsply International, Inc. 15,000 750,000
Elan Corp. ADR (a) 29,600 1,010,100
Emeritus Corp. (a) 13,000 157,625
Fisher Scientific International 23,500 1,036,938
HEALTHSOUTH Corp. (a) 65,800 1,258,425
Horizon/CMS Healthcare Corp. (a) 40,000 620,000
IDEXX Labs, Inc. (a) 13,900 194,600
Living Centers of America, Inc. (a) 22,700 783,150
Lunar Corp. (a) 11,600 397,300
Medtronic, Inc. 23,000 1,431,750
Millipore Corp. 16,500 699,188
Nellcor Puritan Bennett, Inc. (a) 27,000 475,875
Orthologic Corp. (a) 52,700 250,325
Pfizer, Inc. 15,000 1,261,875
R.P. Scherer Corp. (a) 18,600 964,875
Sterling House Corp. (a) 12,000 132,000
Sun Healthcare Group, Inc. (a) 57,600 828,000
-----------
17,933,776
-----------
10 See Notes to Schedule of Investments.
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (UNAUDITED)
................................................................................
<CAPTION>
COMMON STOCKS (CONT.) SHARES MARKET VALUE
<S> <C> <C>
ELECTRONICS & ELECTRICAL EQUIPMENT (5.7%)
Analog Devices, Inc. (a) 31,333 $ 704,993
Arrow Electronics, Inc. (a) 30,000 1,691,250
Hubbell, Inc., Class B 24,000 1,014,000
Linear Technology Corp. 16,400 725,700
Molex, Inc. 41,100 1,438,500
Tyco International Ltd. 15,000 825,000
Xilinix, Inc. (a) 21,800 1,062,750
-----------
7,462,193
-----------
FINANCIAL SERVICES (13.1%)
Capital One Financial Corp. 25,000 931,250
Cityscape Financial Corp. (a) 30,800 546,700
CMAC Investment Corp. 15,000 500,625
Countrywide Credit Industries, Inc. 55,000 1,361,250
Credit Acceptance Corp. (a) 52,900 938,975
CUC International, Inc. (a) 43,100 969,750
Federal Home Loan Mortgage Corp. 96,000 2,616,000
Federal National Mortgage Assoc. 40,000 1,445,000
Finova Group, Inc. 6,100 412,513
Household International, Inc. 16,400 1,412,450
MBNA Corp. 63,000 1,756,125
Morgan Stanley Group, Inc. 25,000 1,468,750
Southern Pacific Funding Corp. (a) 25,500 443,063
Travelers Group, Inc. 40,000 1,915,000
United Companies Financial Corp. 22,300 459,938
-----------
17,177,389
-----------
FOOD, BEVERAGE & RESTAURANTS (3.6%)
Canandaigua Wine Co., Class A (a) 27,216 596,295
Dole Food Co. 30,000 1,132,500
Grand Metropolitan PLC ADR 25,000 796,875
Hormel Foods Corp. 29,000 743,125
IBP, Inc. 30,000 738,750
Performance Food Group, Co. (a) 39,000 687,375
-----------
4,694,920
-----------
HOTELS & LEISURE (0.3%)
Regal Cinemas, Inc. (a) 16,400 442,800
-----------
INDUSTRIAL EQUIPMENT (2.5%)
Albany International 25,000 515,625
Camco International 4,701 206,844
Caterpillar, Inc. 18,000 1,444,500
Illinois Tool Works, Inc. 13,100 1,069,288
-----------
3,236,257
-----------
INSURANCE (8.1%)
ACE, Ltd. 30,000 1,920,000
AFLAC, Inc. 40,000 1,500,000
American International Group, Inc. 10,000 1,173,750
<CAPTION>
SHARES MARKET VALUE
INSURANCE (CONT.)
<S> <C> <C>
EXEL Ltd. 40,000 $ 1,690,000
NAC Re Corp. 11,000 391,875
PMI Group, Inc. 21,000 1,052,625
Progressive Corp. 20,000 1,277,500
Transamerica Corp. 18,000 1,611,000
-----------
10,616,750
-----------
METALS & MINING (0.9%)
Freeport-McMoRan Copper & Gold, Inc., Class A 40,000 1,215,000
-----------
OIL & GAS (2.7%)
Tejas Gas Corp. (a) 15,000 650,625
Tenneco, Inc. 20,000 780,000
Triton Energy Corp. (a) 27,000 1,046,250
Union Texas Petroleum Holdings, Inc. 30,000 551,250
Weatherford Enterra, Inc. (a) 16,838 494,616
-----------
3,522,741
-----------
PAPER & PLASTIC (1.8%)
Aptargroup, Inc. 7,900 302,175
Caraustar Industries, Inc. 18,000 447,750
Champion International Corp. 25,000 1,137,500
Consolidated Papers, Inc. 9,000 469,125
-----------
2,356,550
-----------
PUBLISHING (0.9%)
R. R. Donnelley & Sons Co. 35,000 1,220,625
-----------
RETAIL TRADE (5.1%)
CVS Corp. 20,900 964,013
Fastenal Co. (a) 13,100 458,500
Marks Brothers Jewelers, Inc. (a) 30,100 353,675
May Department Stores Co. 25,000 1,137,500
Micro Warehouse, Inc. (a) 56,758 744,949
PETsMART, Inc. (a) 23,800 481,950
Safeway, Inc. (a) 18,000 834,750
Staples, Inc. (a) 34,500 694,313
The Sports Authority, Inc. (a) 19,500 363,188
Viking Office Products, Inc. (a) 32,900 637,438
-----------
6,670,276
-----------
SERVICES (2.6%)
Cintas Corp. 18,000 949,500
Interim Services, Inc. (a) 25,600 995,200
Robert Half International, Inc. (a) 12,300 428,963
Service Corp. International 18,000 535,500
Unitog Co. 20,000 407,500
-----------
3,316,663
-----------
See Notes to Schedule of Investments. 11
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (UNAUDITED)
................................................................................
<CAPTION>
COMMON STOCKS (CONT.) SHARES MARKET VALUE
<S> <C> <C>
TELECOMMUNICATIONS (3.5%)
Airtouch Communications, Inc. (a) 34,500 $ 793,500
Arch Communications Group, Inc. (a) 47,500 184,063
InteliData Technologies Corp. (a) 50,500 252,500
Mobile Telecommunication Technologies Corp. (a) 60,000 375,000
Nokia Corp. ADR 25,000 1,456,250
Sprint Corp. 35,000 1,592,500
-----------
4,653,813
-----------
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
TEXTILE MILL PRODUCTS (0.2%)
Polymer Group, Inc. (a) 20,000 $ 265,000
-----------
TRANSPORTATION (2.3%)
American Freightways Corp. (a) 29,125 405,930
AMR Corp. (a) 16,000 1,320,000
Tidewater, Inc. 19,000 874,000
U.S. Freightways Corp. 18,800 486,450
-----------
3,086,380
-----------
TOTAL COMMON STOCKS
(Cost $116,910,444) 128,738,442
-----------
<CAPTION>
PAR
VALUE
<S> <C> <C>
SHORT-TERM INVESTMENT (4.7%)
DISCOUNT NOTE
Federal Home Loan Mortgage 6.50% 04/01/97
(Cost $6,221,876) $ 6,223,000 6,223,000
-----------
TOTAL INVESTMENTS (102.9%) (COST $123,133,444)(b) 134,961,442
OTHER ASSETS AND LIABILITIES, NET (-2.9%) (3,783,361)
-----------
NET ASSETS (100.0%) $131,178,081
============
NET ASSET VALUE PER SHARE (12,119,251 SHARES OUTSTANDING) $ 10.82
============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Gross unrealized appreciation and depreciation of investments at
March 31, 1997 is as follows:
Gross unrealized appreciation $20,953,116
Gross unrealized depreciation (9,125,118)
-----------
Net unrealized appreciation $11,827,998
===========
Acronym Name
------- ----
ADR American Depository Receipt
12
<PAGE>
PER SHARE CHANGES / DISTRIBUTION POLICY / DIVIDEND REINVESTMENT PLAN /
1997 ANNUAL MEETING
................................................................................
PER SHARE CHANGES
IN NET ASSETS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED DECEMBER 31,
MARCH 31, 1997 -----------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 11.27 $ 10.55 $ 9.95 $ 10.54 $ 10.28 $ 10.40
--------- --------- --------- --------- --------- ---------
Net investment income 0.00 0.01 0.31 0.23 0.18 0.29
Distributions declared (0.30) (1.02) (0.76) (0.58) (0.48) (0.44)
Impact of shares issued in
dividend reinvestment -- (0.13) -- -- -- --
Net realized and unrealized
gain (loss) on investments (0.15) 1.86 1.05 (0.24) 0.56 0.03
--------- --------- --------- --------- --------- ---------
Net asset value at end of period $ 10.82 $ 11.27 $ 10.55 $ 9.95 $ 10.54 $ 10.28
========= ========= ========= ========= ========= =========
</TABLE>
DISTRIBUTION POLICY
Liberty All-Star Growth Fund, Inc.'s current policy is to pay distributions on
its common shares totaling approximately 10 percent of its net asset value per
year, payable in four quarterly installments of 2.5 percent of the Fund's net
asset value at the close of the New York Stock Exchange on the Friday prior to
each quarterly declaration date. The fixed distributions are not related to the
amount of the Fund's net investment income or net realized capital gains or
losses. If, for any calendar year, the total distributions required by the 10
percent pay-out policy exceed the Fund's net investment income and net realized
capital gains, the excess will generally be treated as a tax-free return of
capital, reducing the shareholder's adjusted basis in his or her shares. If the
Fund's net investment income and net realized capital gains for any year exceed
the minimum amount required to be distributed under the 10 percent pay-out
policy, the Fund may, at its discretion, retain and not distribute net long-term
capital gains to the extent of such excess.
DIVIDEND REINVESTMENT PLAN
Each registered shareholder of the Fund will automatically be a participant in
the Fund's Automatic Dividend Reinvestment and Cash Purchase Plan unless the
shareholder specifically elects otherwise by writing to the Plan Agent, State
Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266-8200 or by
calling 1-800-LIB-FUND (1-800-542-3863). If your shares are held for you by
broker, bank or other nominee, you should contact the institution holding your
shares as to whether you wish to participate, or not participate, in the Plan.
Participants in the Plan have their dividends and distributions automatically
reinvested in additional shares of the Fund. Participants are kept apprised of
the status of their account through quarterly statements.
1997 ANNUAL MEETING
At the Fund's 1997 Annual Meeting held on April 16, shareholders re-elected
James E. Grinnell as a Director for a term of three years, ratified the Fund's
new portfolio management agreement with William Blair & Company, L.L.C., and
ratified the selection of KPMG Peat Marwick LLP as the Fund's independent
auditors for the current year.
13
<PAGE>
NOTES
................................................................................
14
<PAGE>
NOTES
................................................................................
15
<PAGE>
[LIBERTY
ALL*STAR
- -----------
GROWTH FUND
LOGO]
New York Stock Exchange Trading Symbol: ASG
FUND MANAGER
Liberty Asset Management Company
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210-2214
1-617-722-6036
Internet: http://www.lamco.com
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
99 High Street
Boston, Massachusetts 02110
CUSTODIAN
Boston Safe Deposit & Trust Company
One Cabot Road
Medford, Massachusetts 02155
INVESTOR ASSISTANCE,
TRANSFER & DIVIDEND
DISBURSING AGENT & REGISTRAR
State Street Bank and Trust Company
P.O. Box 8200, Boston, Massachusetts 02266-8200
1-800-LIB-FUND (1-800-542-3863)
LEGAL COUNSEL
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
DIRECTORS
Robert J. Birnbaum*
Harold W. Cogger
James E. Grinnell*
Richard W. Lowry*
OFFICERS
Harold W. Cogger, Chairman of the Board of Directors
Richard R. Christensen, President & Chief Executive Officer
William R. Parmentier, Jr., Vice President & Chief Investment Officer
Christopher S. Carabell, Vice President
Timothy J. Jacoby, Treasurer
Peter L. Lydecker, Controller
John L. Davenport, Secretary
* Member of the audit committee.
- --------------------------------------------------------------------------------
Liberty Asset Management Company, the Fund's manager,
is one of the Liberty Financial Companies (NYSE: L).
[LIBERTY
FINANCIAL
LOGO]
FIRST
QUARTER
REPORT
1997
[LIBERTY
ALL*STAR
-----------
GROWTH FUND
LOGO]
